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Monthly Archives: July 2016

NextEra Energy said today that it would acquire Energy Future Holdings’ 80% interest in its regulated utility, Oncor, in a deal valued at $18.4 billion.

In connection with the deal, NextEra and Energy Future entered into a reorganization plan support agreement providing for, among other things, the spin-off of the company’s T-side, Texas Competitive Electric Holdings (TCEH), pursuant to a reorganization plan that will result in a partial step-up in the tax basis of certain TCEH assets, and NextEra’s acquisition of Oncor through the purchase of the company’s so-called E-side, specifically 100% of holding company Energy Future Holdings (EFH).

According to a Form 8-K filed this morning with the Securities and Exchange Commission, the company said the purchase price would consist “primarily of cash.”

NextEra, meanwhile, said in a news release that it would fund $9.5 billion of the purchase price to be used “primarily for the repayment of EFIH debt,” adding, “Of that amount, it is expected that certain creditors will be paid primarily in cash, with the remainder in NextEra Energy common stock.” NextEra said that the amount of NextEra stock ultimately issued to EFIH creditors would be determined based on, among other things, the estimated cash on hand at EFH upon closing and the volume weighted average price of NextEra common stock for a specified number of days leading up to the closing.

NextEra said it would generate the funding from “a combination of debt, convertible equity units, and proceeds from asset sales,” but also noted that the transaction was not subject to any financing contingency.

NextEra said that under the reorganization plan contemplated by the transaction, the EFIH DIP facility, with about $5.4 billion outstanding, would be paid in full, “using cash financed by a non-EFH/Oncor NextEra Energy affiliate upon closing.” NextEra also said the contemplated E-side reorganization plan would “extinguish all EFH and EFIH debt that currently exists above Oncor.”

According to bankruptcy court filings, that includes, among other things, a first-lien and second-lien facility at EFIH, unsecured toggle notes at EFIH, and unsecured debt at EFH.

The deal is subject to regulatory approvals, most notably by the Texas Public Utility Commission, the Federal Energy Regulatory Commission, and the Federal Trade Commission, as well as the completion of the contemplated TCEH reorganization and spin-off, which would occur in September if all goes according to plan.

As reported, certain PUC rulings in connection with the company’s prior plan to sell Oncor to Hunt Consolidated that would have reduced the financial benefits accruing to that deal’s investors from a planned REIT conversion, caused that deal to fall apart last April.

The transaction is required to close by March 26, 2017, subject to a 90-day extension under certain conditions, according to the Form 8-K. NextEra said it expects the deal to close during the first quarter of 2017.

The agreement specifically permits the company to continue to solicit acquisition proposals for Oncor, and even following approval of the merger agreement by the Wilmington, Del., bankruptcy court, to continue discussions on an alternative transaction with any parties with which it was already in active negotiations at the time of such bankruptcy court approval, or with any third party that submits an unsolicited proposal “reasonably likely to lead to a superior proposal.”

The agreement carries a break-up fee, however, of $275 million, if the company completes an alternative transaction. — Alan Zimmerman

He is based in Los Angeles. He joined the firm last month as director.

Chung joined from THL Credit’s Direct Lending platform.

Previously, Chung worked at Los Angeles–based investment bank Libra Securities, on private placements and M&A transactions. He also was part of the corporate finance department of FTI Consulting and worked in the assurance and advisory practice of Ernst & Young.

Krispy Kreme Doughnuts yesterday disclosed that it has entered into a credit agreement providing a $500 million pro rata loan package backing JAB Beech’s roughly $1.35 billion acquisition of the company. Proceeds are also earmarked to refinance existing debt and for working capital and general corporate purposes.

The five-year loan package includes a $350 million, five-year A term loan and a $150 million revolver.

Krispy Kreme and JAB also announced that the acquisition had closed. As a result, Krispy Kreme’s common stock will cease trading on the NYSE. Krispy Kreme will continue to be independently operated from Krispy Kreme’s current headquarters in Winston-Salem, N.C. — Richard Kellerhals

Bank of America Merrill Lynch, Goldman Sachs, Antares Capital, and Golub Capital have agreed to provide roughly $1.3 billion of debt financing to back the acquisition of Epiq Systems by OMERS Private Equity, the private equity arm of OMERS pension plan, and funds managed by Harvest Partners, a middle market private equity fund, according to an Epiq Systems statement.

Epiq Systems this morning announced that it had entered into an agreement to be acquired for $16.50 per share in cash, representing a total value of roughly $1 billion, including assumed debt. The acquisition is expected to close in the fourth quarter of 2016.

Upon completion of the acquisition, Epiq will become a privately held company and will be combined with DTI, a legal process outsourcing company majority-owned by OMERS and managed by OMERS Private Equity.

In April 2015, Epiq Systems obtained a $75 million fungible add-on to its B term loan due August 2020 (L+375, 0.75% LIBOR floor). As of March 31, there was roughly $366 million outstanding under the B term loan, $19 million outstanding under its $100 million revolver due 2018, and roughly $12 million outstanding under its capital leases.

Kansas City, Kan.–based Epiq is a global provider of integrated-technology solutions for the legal profession. Corporate issuer ratings are B+/B1. The company’s shares currently trade on the Nasdaq under the ticker EPIQ. — Richard Kellerhals

A roadshow for the offering will run Aug. 1–4, sources noted. The proceeds will be used to back Apollo Management’s $2.2 billion purchase of Diamond Resorts. Apollo in late June agreed to acquire the company for $30.25 per share. At the time the deal was announced, the company said closing was expected over the next few months.

Take note, the issuer is also shopping a $1.2 billion seven-year term loan B and a $100 million revolver to fund the buyout. Price talk for the loan has been set at L+500, with a 1% LIBOR floor and a 99 offer price.

Expected ratings for the notes are CCC+/Caa1. On July 25, S&P Global Ratings lowered its corporate credit rating for Diamond Resorts to B from B+, noting the incremental leverage and the company’s financial sponsor ownership.

Diamond Resorts International operates a network of more than 420 vacation destinations located in 35 countries throughout the continental U.S., Hawaii, Canada, Mexico, the Caribbean, South America, Central America, Europe, Asia, Australasia, and Africa. — Staff reports

Sole arranger Nomura is launching with a lender meeting at 11 a.m. EDT tomorrow a $780 million, seven-year covenant-lite B term loan for Leslie’s Poolmart, according to sources.

Proceeds from the loan, along with $420 million of unsecured notes that will be placed privately and cash on hand, will be used to refinance the company’s outstanding debt as well as fund a dividend to shareholders.

The pool supplies company, which is controlled by CVC Capital Partners and Leonard Green & Partners, last tapped the loan market in November 2013 for a repricing of its term loan due October 2019, reducing the coupon to L+325, with a 1% LIBOR floor, from L+400, with a 1.25% floor. At the time of the 2013 repricing, there was $610.5 million outstanding under the TLB. — Kerry Kantin

U.S. leveraged loan issuance totaled $11.1 billion last week, following up on the $14.2 billion the previous week, according to LCD, an offering of S&P Global Market Intelligence. Year-to-date loan issuance totals $236 billion, compared to $264 billion during the same period one year ago. – Staff reports

Goldman Sachs, RBC Capital Markets, and Natixis are launching a with a lender meeting on Thursday, July 28, at 10 a.m. EDT their $435 million term loan B backing Charlesbank Capital Partners’ purchase of Polyconcept, a value-added supplier of promotional products, according to sources.The financing package includes an $88 million ABL revolver and a $435 million seven-year first-lien term loan, sources said. A second-lien term loan will be privately placed.

Polyconcept last tapped the loan market in 2013 with a first- and second-lien loan package to refinance existing debt. The financing package included a cross-border first-lien term loan split between a $255 million U.S. dollar tranche and a €46 million euro piece, as well as a $125 million privately placed second-lien term loan.

Polyconcept, headquartered in New Kensington, Pa., develops and distributes promotional, lifestyle, and gift products. The company is currently owned by Investcorp. — Chris Donnelly

Pricing in the lower middle market is starting to erode amid heated competition for mandates, despite this segment’s traditionally more stable nature.

An analysis of six BDC portfolios that target the lower middle market shows that first-lien rates have fallen significantly year-over-year, according to LCD, an offering of S&P Global Market Intelligence.

The yield on new-issue, floating-rate first-lien debt averaged 8.82% in the first quarter, down from 11.04% in the first three months of 2015 across the six BDCs: Alcentra Capital (ABDC), Capitala (CPTA), Garrison (GARS), Harvest Capital (HCAP), Monroe Capital (MRCC), and Triangle Capital (TCAP).

Yields on middle market second-lien debt contracted less severely, to 10%, from 10.50%, in the same period.

Lending this far down the spectrum takes investors to EBITDA depths of roughly $30 million or less, below the traditional middle market marker of $35–50 million. Those brackets aren’t set in stone, but many lenders would agree the two tiers split about there.

Three of the six BDCs target companies generating up to $30 million of EBITDA, while TCAP goes a bit wider, to borrowers generating $35 million. HCAP targets much smaller businesses—typically those with no more than $15 million of EBITDA. MRCC provides a broad catchall of companies with revenue between $10 million and $2.5 billion, but most of the portfolio skews toward the lower end of the range.

Lower middle market rates remain perched well above the 6–7% levels across the upper bands of the middle market, but pricing at the bottom of the stack is expected to deflate in the months ahead unless the M&A machine kicks back into gear.

Gross new-issue volume in the first quarter was $61.86 million for the six BDCs, roughly half of the $121.67 million total in 1Q15.

Bellevue, Wash.-based Outerwall announced the $52-per-share cash buyout this morning. The purchase price is a 51% premium over the closing stock pricing on March 14, before Outerwall’s board announced plans to explore a possible sale.

The board has unanimously approved the Apollo offer. The purchase is expected to close in the third quarter, pending shareholder approval.

Outerwall said it will release second quarter earnings Thursday, but it does not plan to hold a conference call to discuss results.

In April, the owner of Redbox and Coinstar kiosks reported first-quarter earnings that beat expectations.

Earlier this year agencies lowered the company’s credit ratings on deteriorating performance in the physical rental business. S&P Global Ratings lowered Outerwall’s corporate credit rating in February by two notches to BB–, from BB+. Similarly, Moody’s downgraded Outerwall to Ba2, from Ba3.

Separately, the company this morning declared a quarterly dividend of $0.60 per share of common stock to be paid on Sept. 6. — Kelly Thompson